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Budget Calculators: Three Ways They Help

Every household needs a budget, but there are no one-size-fits-all solutions. Some people want to take control of debt, while others are busy pinching pennies for a much-needed vacation. Still others are just entering the workforce with a first job and want to start off on the right foot.

Or maybe the whole budget revolves around one life goal, such as a wedding.

The purpose of a budget isn't just reaching a goal; it's to show you what you've got to work with. When you understand the fundamentals of how budgets work, you can manage your finances better.

Budget calculators take the time-consuming job of organizing and keeping track of finances, and compartmentalize the details into workable chunks of information. Smaller chunks are less intimidating.

Know What You've Got

One of the first steps in any budget is understanding your income. This might be income from a job, disbursements from a trust, revenue from rental property, or any other way that money comes to you. A budget calculator shows your income, which is the foundation for any budget.

As you get deeper into creating a budget, you might learn that your income isn't what you thought, or maybe it's less than what you need. While the budget itself can't create more income, it can reveal needs and help you manage what you've got.

Most people know what they earn, but seeing a total in black and white leaves no room for misinterpretation.

Understand What You Spend

After assets come debts. These are your expenses, and they fit into a few categories. Rent or mortgage and vehicle payments are usually predictable. Utilities fluctuate, as do credit card minimum payments and cell phone bills. Discretionary expenses have the most wiggle room. You're completely in control of these expenditures, which include items such as dining out and clothing.

A budget calculator lets you categorize expenses to show where your money goes. It's critical to be honest with yourself, especially with discretionary spending. Only by knowing where money is spent can you make educated decisions about whether those expenses are reasonable.

If spending gets out of hand, a calculator shows you where and by how much.

Reveal Hidden Assets, or at Least The Potential

Your income might not change, but the amount remaining at the end of the month could. Once income and spending are accounted for, a budget calculator helps you make educated choices.

Discretionary spending tweaks could free up some of your finances. For example, you can make coffee at home and skip a month's worth of $4 specialty coffee on weekdays, saving about $70 a month. You'll still need to buy coffee at the grocery store, but for a lot less. It's hard to imagine a $4 cup of coffee having that much effect on a budget, but it all adds up. If you buy lunch instead of bringing it from home, there is another avenue for savings. This "found" money might go toward reducing debt or toward a goal such as savings.

A budget calculator brings your finances into focus. It's a revelation tool that organizes what you think you know, and turns it into meaningful data.